Intrinsic value of Ritchie Bros. Auctioneers - RBA

Previous Close

$32.26

  Intrinsic Value

$22.05

stock screener

  Rating & Target

sell

-32%

Previous close

$32.26

 
Intrinsic value

$22.05

 
Up/down potential

-32%

 
Rating

sell

We calculate the intrinsic value of RBA stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  9.69
  9.30
  8.87
  8.48
  8.13
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.21
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
  5.20
Revenue, $m
  566
  619
  674
  731
  790
  852
  916
  983
  1,052
  1,124
  1,199
  1,277
  1,358
  1,443
  1,531
  1,622
  1,718
  1,817
  1,921
  2,030
  2,143
  2,261
  2,385
  2,514
  2,649
  2,791
  2,939
  3,094
  3,257
  3,427
  3,605
Variable operating expenses, $m
 
  408
  443
  480
  518
  558
  599
  642
  687
  733
  782
  822
  874
  929
  985
  1,044
  1,106
  1,170
  1,237
  1,306
  1,379
  1,455
  1,535
  1,618
  1,705
  1,797
  1,892
  1,992
  2,096
  2,206
  2,321
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  437
  408
  443
  480
  518
  558
  599
  642
  687
  733
  782
  822
  874
  929
  985
  1,044
  1,106
  1,170
  1,237
  1,306
  1,379
  1,455
  1,535
  1,618
  1,705
  1,797
  1,892
  1,992
  2,096
  2,206
  2,321
Operating income, $m
  129
  211
  230
  251
  272
  294
  317
  340
  365
  391
  418
  455
  484
  514
  545
  578
  612
  647
  685
  723
  764
  806
  850
  896
  944
  994
  1,047
  1,103
  1,160
  1,221
  1,285
EBITDA, $m
  170
  259
  282
  306
  331
  357
  383
  411
  440
  471
  502
  535
  569
  604
  641
  679
  719
  761
  804
  849
  897
  946
  998
  1,052
  1,109
  1,168
  1,230
  1,295
  1,363
  1,434
  1,509
Interest expense (income), $m
  6
  21
  24
  27
  30
  33
  37
  40
  44
  48
  52
  56
  60
  64
  69
  74
  79
  84
  90
  95
  101
  107
  114
  121
  128
  135
  143
  151
  160
  169
  178
Earnings before tax, $m
  130
  190
  206
  224
  242
  261
  280
  300
  321
  343
  366
  399
  424
  450
  476
  504
  533
  563
  595
  628
  662
  698
  736
  775
  816
  859
  904
  951
  1,001
  1,052
  1,107
Tax expense, $m
  36
  51
  56
  60
  65
  70
  76
  81
  87
  93
  99
  108
  114
  121
  129
  136
  144
  152
  161
  170
  179
  189
  199
  209
  220
  232
  244
  257
  270
  284
  299
Net income, $m
  92
  139
  151
  163
  177
  190
  204
  219
  235
  251
  267
  292
  310
  328
  348
  368
  389
  411
  434
  458
  483
  510
  537
  566
  596
  627
  660
  694
  730
  768
  808

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  208
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,600
  1,520
  1,655
  1,795
  1,941
  2,093
  2,251
  2,415
  2,585
  2,762
  2,946
  3,138
  3,337
  3,545
  3,761
  3,986
  4,220
  4,465
  4,720
  4,987
  5,265
  5,556
  5,860
  6,177
  6,510
  6,858
  7,222
  7,603
  8,002
  8,420
  8,858
Adjusted assets (=assets-cash), $m
  1,392
  1,520
  1,655
  1,795
  1,941
  2,093
  2,251
  2,415
  2,585
  2,762
  2,946
  3,138
  3,337
  3,545
  3,761
  3,986
  4,220
  4,465
  4,720
  4,987
  5,265
  5,556
  5,860
  6,177
  6,510
  6,858
  7,222
  7,603
  8,002
  8,420
  8,858
Revenue / Adjusted assets
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
Average production assets, $m
  582
  635
  692
  750
  811
  875
  941
  1,009
  1,081
  1,155
  1,232
  1,312
  1,395
  1,482
  1,572
  1,666
  1,764
  1,866
  1,973
  2,084
  2,201
  2,322
  2,449
  2,582
  2,721
  2,866
  3,019
  3,178
  3,345
  3,519
  3,703
Working capital, $m
  125
  -64
  -70
  -76
  -82
  -89
  -95
  -102
  -109
  -117
  -125
  -133
  -141
  -150
  -159
  -169
  -179
  -189
  -200
  -211
  -223
  -235
  -248
  -261
  -276
  -290
  -306
  -322
  -339
  -356
  -375
Total debt, $m
  620
  678
  764
  854
  947
  1,044
  1,145
  1,250
  1,359
  1,472
  1,590
  1,712
  1,839
  1,972
  2,110
  2,254
  2,404
  2,560
  2,723
  2,893
  3,071
  3,257
  3,451
  3,654
  3,867
  4,089
  4,322
  4,565
  4,820
  5,087
  5,367
Total liabilities, $m
  912
  971
  1,057
  1,147
  1,240
  1,337
  1,438
  1,543
  1,652
  1,765
  1,883
  2,005
  2,132
  2,265
  2,403
  2,547
  2,697
  2,853
  3,016
  3,186
  3,364
  3,550
  3,744
  3,947
  4,160
  4,382
  4,615
  4,858
  5,113
  5,380
  5,660
Total equity, $m
  687
  549
  597
  648
  701
  756
  813
  872
  933
  997
  1,064
  1,133
  1,205
  1,280
  1,358
  1,439
  1,523
  1,612
  1,704
  1,800
  1,901
  2,006
  2,115
  2,230
  2,350
  2,476
  2,607
  2,745
  2,889
  3,040
  3,198
Total liabilities and equity, $m
  1,599
  1,520
  1,654
  1,795
  1,941
  2,093
  2,251
  2,415
  2,585
  2,762
  2,947
  3,138
  3,337
  3,545
  3,761
  3,986
  4,220
  4,465
  4,720
  4,986
  5,265
  5,556
  5,859
  6,177
  6,510
  6,858
  7,222
  7,603
  8,002
  8,420
  8,858
Debt-to-equity ratio
  0.902
  1.240
  1.280
  1.320
  1.350
  1.380
  1.410
  1.430
  1.460
  1.480
  1.490
  1.510
  1.530
  1.540
  1.550
  1.570
  1.580
  1.590
  1.600
  1.610
  1.620
  1.620
  1.630
  1.640
  1.650
  1.650
  1.660
  1.660
  1.670
  1.670
  1.680
Adjusted equity ratio
  0.344
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  92
  139
  151
  163
  177
  190
  204
  219
  235
  251
  267
  292
  310
  328
  348
  368
  389
  411
  434
  458
  483
  510
  537
  566
  596
  627
  660
  694
  730
  768
  808
Depreciation, amort., depletion, $m
  41
  48
  52
  55
  59
  63
  67
  71
  75
  80
  84
  79
  85
  90
  95
  101
  107
  113
  120
  126
  133
  141
  148
  156
  165
  174
  183
  193
  203
  213
  224
Funds from operations, $m
  189
  187
  202
  219
  236
  253
  271
  290
  310
  330
  352
  371
  394
  418
  443
  469
  496
  524
  554
  585
  617
  650
  686
  722
  761
  801
  843
  887
  933
  982
  1,032
Change in working capital, $m
  11
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
Cash from operations, $m
  178
  192
  208
  225
  242
  259
  278
  297
  317
  338
  359
  379
  403
  427
  452
  479
  506
  535
  565
  596
  629
  663
  698
  736
  775
  816
  858
  903
  950
  999
  1,051
Maintenance CAPEX, $m
  0
  -35
  -39
  -42
  -45
  -49
  -53
  -57
  -61
  -65
  -70
  -75
  -79
  -85
  -90
  -95
  -101
  -107
  -113
  -120
  -126
  -133
  -141
  -148
  -156
  -165
  -174
  -183
  -193
  -203
  -213
New CAPEX, $m
  -19
  -54
  -56
  -59
  -61
  -63
  -66
  -69
  -71
  -74
  -77
  -80
  -83
  -87
  -90
  -94
  -98
  -102
  -107
  -111
  -116
  -122
  -127
  -133
  -139
  -145
  -152
  -159
  -167
  -175
  -183
Cash from investing activities, $m
  -117
  -89
  -95
  -101
  -106
  -112
  -119
  -126
  -132
  -139
  -147
  -155
  -162
  -172
  -180
  -189
  -199
  -209
  -220
  -231
  -242
  -255
  -268
  -281
  -295
  -310
  -326
  -342
  -360
  -378
  -396
Free cash flow, $m
  61
  103
  113
  124
  135
  147
  159
  172
  185
  198
  212
  224
  240
  256
  272
  289
  307
  326
  345
  365
  386
  408
  431
  454
  479
  505
  533
  561
  591
  622
  654
Issuance/(repayment) of debt, $m
  507
  82
  86
  90
  93
  97
  101
  105
  109
  113
  118
  122
  127
  133
  138
  144
  150
  156
  163
  170
  178
  186
  194
  203
  212
  222
  233
  244
  255
  267
  280
Issuance/(repurchase) of shares, $m
  -12
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  474
  82
  86
  90
  93
  97
  101
  105
  109
  113
  118
  122
  127
  133
  138
  144
  150
  156
  163
  170
  178
  186
  194
  203
  212
  222
  233
  244
  255
  267
  280
Total cash flow (excl. dividends), $m
  535
  186
  199
  214
  228
  244
  260
  276
  294
  311
  330
  347
  367
  388
  410
  433
  457
  482
  508
  535
  564
  594
  625
  658
  692
  728
  765
  804
  846
  889
  934
Retained Cash Flow (-), $m
  16
  -46
  -49
  -51
  -53
  -55
  -57
  -59
  -62
  -64
  -66
  -69
  -72
  -75
  -78
  -81
  -85
  -88
  -92
  -96
  -100
  -105
  -110
  -115
  -120
  -126
  -131
  -138
  -144
  -151
  -158
Prev. year cash balance distribution, $m
 
  184
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  324
  151
  163
  176
  189
  203
  217
  232
  248
  264
  278
  295
  313
  332
  352
  372
  394
  416
  439
  463
  489
  515
  543
  572
  602
  634
  667
  702
  738
  776
Discount rate, %
 
  5.40
  5.67
  5.95
  6.25
  6.56
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.04
  15.80
  16.59
  17.42
  18.29
  19.20
  20.16
  21.17
  22.23
PV of cash for distribution, $m
 
  307
  135
  137
  138
  138
  136
  133
  129
  124
  118
  110
  102
  94
  85
  77
  68
  59
  51
  43
  36
  29
  24
  19
  14
  11
  8
  6
  4
  3
  2
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Ritchie Bros Auctioneers Inc is a Canada-based holding company. The Company is an industrial auctioneer and used equipment distributor, selling used equipment and other assets. Its segments include Core Auction, which is a network of auction locations that conduct live, unreserved auctions with both on-site and online bidding, and Other, which includes its EquipmentOne and Mascus International Holding B.V. (Mascus) online services. EquipmentOne is an online marketplace that equipment sellers can navigate independently. EquipmentOne facilitates the completion of sales through a settlement process managed by EquipmentOne that protects both the seller and the buyer. Mascus is an online equipment listing service for used heavy machinery and trucks. It offers subscriptions to equipment dealers, brokers, exporters and equipment manufacturers to list equipment available for sale at a listed price. The Company, through Mascus, provides online advertising services, business tools and solutions.

FINANCIAL RATIOS  of  Ritchie Bros. Auctioneers (RBA)

Valuation Ratios
P/E Ratio 37.5
Price to Sales 6.1
Price to Book 5
Price to Tangible Book
Price to Cash Flow 19.4
Price to Free Cash Flow 21.7
Growth Rates
Sales Growth Rate 9.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -13.6%
Cap. Spend. - 3 Yr. Gr. Rate -12%
Financial Strength
Quick Ratio 9
Current Ratio 0.2
LT Debt to Equity 86.8%
Total Debt to Equity 90.2%
Interest Coverage 23
Management Effectiveness
Return On Assets 7.1%
Ret/ On Assets - 3 Yr. Avg. 9.3%
Return On Total Capital 8.7%
Ret/ On T. Cap. - 3 Yr. Avg. 12.1%
Return On Equity 13.2%
Return On Equity - 3 Yr. Avg. 15.3%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 88.3%
Gross Margin - 3 Yr. Avg. 88.5%
EBITDA Margin 31.3%
EBITDA Margin - 3 Yr. Avg. 37.2%
Operating Margin 22.8%
Oper. Margin - 3 Yr. Avg. 27.8%
Pre-Tax Margin 23%
Pre-Tax Margin - 3 Yr. Avg. 28%
Net Profit Margin 16.3%
Net Profit Margin - 3 Yr. Avg. 20.5%
Effective Tax Rate 27.7%
Eff/ Tax Rate - 3 Yr. Avg. 25.5%
Payout Ratio 76.1%

RBA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RBA stock intrinsic value calculation we used $566 million for the last fiscal year's total revenue generated by Ritchie Bros. Auctioneers. The default revenue input number comes from 2016 income statement of Ritchie Bros. Auctioneers. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our RBA stock valuation model: a) initial revenue growth rate of 9.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.4%, whose default value for RBA is calculated based on our internal credit rating of Ritchie Bros. Auctioneers, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Ritchie Bros. Auctioneers.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of RBA stock the variable cost ratio is equal to 66.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for RBA stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Ritchie Bros. Auctioneers.

Corporate tax rate of 27% is the nominal tax rate for Ritchie Bros. Auctioneers. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the RBA stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for RBA are equal to 102.7%.

Life of production assets of 16.5 years is the average useful life of capital assets used in Ritchie Bros. Auctioneers operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for RBA is equal to -10.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $687 million for Ritchie Bros. Auctioneers - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 106.248 million for Ritchie Bros. Auctioneers is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Ritchie Bros. Auctioneers at the current share price and the inputted number of shares is $3.4 billion.

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COMPANY NEWS

▶ Ritchie Bros.' Orlando auction extended to six days   [Jan-17-18 07:00AM  PR Newswire]
▶ The Amazon effect: Ritchie Bros closes five physical locations, including one in N.C.   [Nov-10-17 05:35PM  American City Business Journals]
▶ Ritchie Bros. misses 3Q profit forecasts   [06:12PM  Associated Press]
▶ Ritchie Bros. beats 2Q profit forecasts   [Aug-08-17 05:22PM  Associated Press]
▶ New Strong Sell Stocks for July 13th   [Jul-13-17 11:39AM  Zacks]
▶ 3 Stocks That Feel Like Wal-Mart in 1970   [Jun-10-17 08:10PM  Motley Fool]
▶ Ritchie Bros. crane sales ready to reach new heights   [Jun-05-17 03:05PM  PR Newswire]
Financial statements of RBA
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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